Question

Perry Corporation produces and sells a single product. Data for that product​ are:

Sales price per unit	$295
Variable cost per unit	$190
Fixed expenses for the month	$640,000
Currently selling	9,000 units

Upper management is considering using a biodegradable packaging which costs $8 more per unit but it produces less waste in the long run. Management plans to increase advertising by $12,000 in the first month to advertise this new feature to their packaging. They believe that environmentally friendly people will switch to their product resulting in an increase in sales of 2,500 units per month. How many units would the company have to sell to maintain current operating income if these changes are​ implemented? Round up to the nearest whole unit.  

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and format. For detailed answer refer to the supporting sheet.

Answer 3 Present Profit = No. of units (sales-variable cost) -fixed expenses = 9000*(295-190)-640000 = $ 305000 5 7 Number of units to be sold to maintain the current operating income 3 =( Revised fixed cost+desired profit)/revised contribution margin =( 640000+12000+305000)/(295-190-8) 0 = 9866 Units (rounded off to nearest whole number) 2 Thus the correct answer is 9866 Units